Recent tax changes reflected in new IRS statistics
The IRS recently released its Spring 2016 Statistics of Income (SOI) Bulletin containing a treasure-trove of useful information. The bulletin contains data gleaned from more than 148 million individual income tax returns filed for the 2014 tax year (TY). The data for 2014 reveal a corresponding increase in tax liability across all tax brackets. The SOI bulletin presents the most recent figures available for the 2014 tax year from various tax and information returns filed by U.S. taxpayers. In addition, the report compares the data to similar statistics measured in 2013. In general, the latest report shows a continued improvement in the national economy, year over year.
Tax Changes in 2014
Many effects felt by taxpayers in 2014 were extensions of tax law changes implemented in CY 2013. In TY 2014, the inflation-adjusted caps for each income tax bracket were raised, which meant that taxpayers whose income did not increase significantly from the previous year may have fallen into a lower tax bracket. The alternative minimum tax experienced a slight increase.
As was the case in 2015 when the Bush-era tax cuts officially expired, the top tax rate for taxpayers remained at 39.6 percent. Taxpayers making more than $200,000, or $250,000 for married taxpayers, were subjected to a Medicare surtax of 0.9 percent. “Pease limitations,” which place limitations on certain higher-income taxpayers, remained in effect for 2014. In addition, the Patient Protection and Affordable Care Act affected many taxpayers by imposing a “shared responsibility payment’ for taxpayers who did not have health insurance in 2014.
According to the Spring 2016 bulletin, the number of individual income tax returns filed for tax year 2014 increased from the previous year for a total of 148.7 million, reflecting a 0.6 percent increase. Adjusted gross income (AGI) increased from $9.1 trillion to $9.7 trillion. Taxable income rose 8.0 percent to $6.9 trillion. The alternative minimum tax experienced a 9.4 percent increase, for a total of $24.6 billion. The bulletin reported that total income tax and total tax liability both increased by 10 percent to $1.4 trillion.
In addition, the preliminary data for 2014 show that taxable income increased 8.0 percent to $6.9 trillion. The IRS reported that the average AGI on all 2014 individual income tax returns was $65,021, and average taxable income was $61,328, both representing increases from the 2013 amounts, by 5.4 percent and 6.1 percent respectively.
The IRS’s preliminary data indicate that total tax liability for the 2014 tax year rose to $1.4 trillion owed, as reflected on more than 101 million returns. This figure increased from the $1.3 trillion reported for some 98.8 million returns filed in TY 2013. Although total tax liability increased for all income categories, taxpayers with adjusted gross income of $250,000 or more experienced the steepest percent change in tax liability, with a 15.9% increase from 2013 to 2014 (calculated from the $622.2 billion owed for 2013 versus the $721.2 billion owed for 2014), the IRS reported. Overall, total tax liability increased by 10 percent over 2013’s figure, for a total of $1.4 trillion.
The increase in tax liability is likely the result of continued growth in capital gains distribution. For TY 2014, the capital gains distribution rose to nearly $79 billion, up nearly 75% from TY 2013’s $45.2 billion. In addition, net capital gains increased 34.4 percent to $586.5 billion. The amount of net capital gains reported on tax returns with $250,000 or more in adjusted gross income increased by $120.89 billion (from $323.42 billion for 2013 to $444.31 billion for 2014).
The continued increase in net capital gains may have likely contributed to the increase in the number of taxpayers in the highest tax brackets, which may, in part, explain the overall increase in tax liability between 2013 and 2014. For example, the preliminary data for 2014 indicates that there were 431,477 more taxpayers in the $250,000 and up income category who reported net capital gains than there were for 2013. In addition, the corresponding increase in taxpayers for the $200,000 to $250,000 income category was 273,322 for 2014. The data show that all income categories, except that for AGI from $30,000 to under $50,000, experienced an increase in the number of tax returns reporting net capital gains.